CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Exam-style questions and sample answers have been written by the authors. In examinations, the way marks are awarded may
be different.
Coursebook answers
Most of the answers are in ‘outline’ form indicating the appropriate points and skills that learners need
to include in their answers. They provide the necessary guidance to allow learners to develop and extend
the points for a fuller answer that contains the relevant skills. In many instances, there may be other valid
approaches to answering the question.
Chapter 23
Business in context
Learners’ discussion might include:
Can an oil and gas business ever be fully sustainable?
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Oil and gas are finite resources so will eventually be depleted if use is continued.
Extraction and use of oil and gas contribute to global warming.
Operations can be made more sustainable but not fully sustainable.
Benefits of measures taken by Total to the company:
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Reducing carbon footprint may attract customers to Total and so increase sales.
Use of more efficient refining equipment and well-insulated premises will reduce costs and make
products more price competitive.
Positive publicity from the changes made will attract customers.
Diversification into renewable energy will protect long-term income streams.
External changes, such as government restrictions on the use of diesel cars in the future, will require
Total to find alternatives to oil and gas extraction to generate income.
Activities
Activity 23.1
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Rapid Pizza: 3 000 ÷ 15 = 200 pizzas per employee
Pizza to Go: 3 960 ÷ 18 = 220 pizzas per employee
Pizza4U: 6 600 ÷ 25 = 264 pizzas per employee
Learners’ answers might include:
• Higher weekly pay may increase motivation and therefore productivity.
• Workers at Pizza4U may have a higher level of skill and/or training.
• Availability and quality of capital equipment. Pizza4U workers may have access to
better machinery.
Labour productivity affects labour costs per pizza and therefore the price to the customer. At Pizza4U,
the labour cost per pizza is $0.25 whereas at Rapid Pizza it is $0.30. Price is a key factor in consumer
decisions. If a business can charge a lower price, it can gain greater market share.
Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Activity 23.2
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a Output produced in a given time period.
b The effectiveness of turning inputs into outputs.
2 a 2019: 50 000 ÷ 20 = 2 500
2020: 55 000 ÷ 24 = 2 292
2021: 60 000 ÷ 30 = 2 000
b Labour productivity is decreasing year on year. It has decreased by 20% from 2019 to 2021.
3 Declining productivity has caused the unit labour cost to increase from $1.20 to $1.50. This is an
increase of 25%. As Westlife has to compete with other firms in the market, an increase in costs will
reduce profitability because Westlife may not be able to pass on the increased costs to the customer.
Westlife’s major competitor has 20% lower unit labour costs and therefore has a competitive advantage.
With lower profits made, there will be less capital for re-investment and therefore new technology will
be more difficult to introduce. This will further harm Westlife’s competitiveness in the market.
4 Increase pay. Pay is a fundamental consideration for employees. The salary paid to workers has not
increased for three years. Increasing pay may motivate employees to work more productively. However,
although pay is important, many commentators do not consider it to have a long-term effect on
productivity. Herzberg, for example, classifies pay as a hygiene factor.
Increasing pay will increase unit costs unless the increase in productivity is greater than the increase in
pay. Thus, management needs to ensure that any increase in pay is linked to a productivity agreement.
Install new machinery. Some of the machinery is unreliable and causing disruption to the production
line. Installing new, more efficient, machinery should increase both labour and capital productivity.
Evaluation could include a judgement that the machinery may be expensive and Westlife may not have
the financial resources to purchase it due to its falling profitability. Installing the machinery will be
disruptive and employees may need training.
Installing new machinery is a longer-term solution to the problem. It may not be possible to achieve
the objective of increasing productivity within six months.
Activity 23.3
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Handmade wedding cakes: job production as each cake will be made to an individual specification.
Standard loaves and bread rolls: flow production as there is a high level of demand all year round and
little variation for these highly standardised products.
Doughnuts and family cakes: batch production due to the lower level of demand and batches can be
matched to demand according to the time of the week.
Flow-line production might increase profitability due to the lower level of labour required as the process will
be highly mechanised. However, a significant investment in capital equipment would be required.
With consistent output rates, it should be possible to minimise stock-holding of inputs such as flour
and sugar. This would reduce costs and increase profitability.
Evaluation should include a final justified conclusion that considers the following points: is demand
for family cakes and doughnuts sufficiently high to justify the investment in a flow production line?
Demand varies through the week, therefore it would be necessary to have a production line capable of
switching between products. If there are dedicated flow lines, the cost would be greater, as one would
be needed for doughnuts and another for the family cakes.
Activity 23.4
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Mass customisation uses flexible production lines capable of making different versions of the same
product. Caterpillar produces 11 000 engines each year and almost all are different, based on variation
of up to 20% of the 1 000 parts that go into each product. Therefore, Caterpillar is better able to meet
the differing demands of its customers. Customers will be more satisfied with the construction and
power equipment they purchase and this will increase sales and potentially profits. Answer may be
applied to Cessna using similar analysis.
Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
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Batch production enables a business to produce a batch of identical products but with variation between
batches. Mass customisation will make production more flexible to meet the specific demands of customers
regarding clothing. Greater variation in the cut, design and colours of items of clothing should increase
demand yet maintain high-volume output. Mass customisation may be more responsive to the rapidly
changing demands in the clothing industry. However, mass customisation will require investment in
advanced and flexible capital equipment, a skilled workforce, clothing designs with standardised elements
but some interchangeable ones, and suppliers that are able to supply variations in cloth and other supplies.
The investment required to set up mass customisation may be expensive.
Evaluation should include a final justified conclusion about the most appropriate operations method in
the context of this business.
Activity 23.5
Learners’ answers will vary.
Exam-style questions
Short answer questions
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Changing inputs into outputs, adding value, e.g. in manufacturing.
It could reduce the workforce proportionally more than the reduction in production. This
demonstrates that production levels are an absolute measure but productivity is a relative one.
Inverse: as labour productivity goes up, unit cost goes down because each worker is producing a higher
level of output; the cost of labour can be divided by a higher output level to give a lower average cost.
Marketing adds perceived value, e.g. brand image; operations adds value through the transformation
process by producing high levels of output from inputs.
Even high levels of efficiency and productivity might not lead to effective production if the products do
not meet customers’ wants and needs.
Production levels that can be maintained in the long term, e.g. by protecting the environment and not
damaging the quality of life for future generations.
Learners’ answers will vary, e.g. land to grow wheat; labour to sow and harvest; capital to set up
irrigation and buy equipment (e.g. combine harvester).
Learners’ answers will vary, e.g. training to improve efficiency, e.g. speeding up the decoration of cakes;
production line system to make bread in large quantities.
Learners’ answers will vary, e.g.:
• Efficiency is concerned with reducing the time spent with each patient; speeding up the booking of
appointments; reducing waiting times.
• Effectiveness is concerned with meeting the needs of customers, e.g. providing the dental services
that clients are prepared to pay for.
Learners’ answers will vary, e.g. to reduce average costs of each shirt and dress in the long run as
labour costs are less and productivity is higher.
Learners’ answers will vary, e.g. redundancies, as some workers are replaced by machines and it may
not be possible to employ them elsewhere in the business.
Quality assurance ensures there are no flaws in gems, which reduces the cost of materials by reducing
waste. Job production enables bespoke designs to meet the requirements of each client, which will
enable higher prices to be charged.
Learners’ answers might include:
a Batch production so that a range of different designs can be made but in relatively high volumes.
b Flow production so that plugs can be mass-produced. All plugs are identical.
c Job production to provide unique designs.
d Flow production. Flow lines can produce large volumes of computers. Specifications can be
altered by changing components used on the flow lines.
Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Essay questions
1 a Learners’ answers will vary but should include one advantage and one disadvantage:
Advantages: mass production of identical items at low unit cost is possible; low labour costs;
planning of inputs is relatively easy due to constant rate of output; quality is consistent; it
produces highly standardised products.
Disadvantages: high set-up cost; high fixed costs; work is deskilled and repetitive, resulting in
demotivation; reduction in demand will significantly increase average costs; variety of products
produced will be limited.
b Sustainable operations means that operations can be maintained in the long term.
Benefits:
• Costs are reduced as less resources are used (e.g. energy), which can give competitive
advantage.
• Reducing the use of materials can increase demand from consumers who are concerned about
the environment.
• Reduced rates of waste will reduce costs.
• It minimises the risks of negative publicity damaging sales.
Disadvantages:
• Investment may be required to make the business more sustainable, e.g. managing the
recycling of materials.
• Products may need to be changed to use recycled materials or more environmentally friendly
materials. Some materials may be more expensive.
• Redesigning products can be expensive.
• Supplies may be more expensive.
Evaluation could include: ultimately, businesses need to be sustainable to continue operations
in the long term. Analyse the reasons why customers, investors and governments might react
positively to a business adopting sustainable operations.
However, in some industries, sustainability measures will put the business at a competitive
disadvantage and, for many consumers, price is a critical consideration.
2 a Introduce more automation in the store, e.g. self-operated checkouts, as several can be controlled
by just one employee.
Give employees greater responsibility. This will motivate some workers, leading to an increase in
productivity. Workers often know how best to perform tasks as they have developed expertise from
continually repeating tasks.
b The level of demand is a critical factor. Batch production produces batches of identical products
so the demand has to exist for increased output of furniture.
• Impact on employees. Batch production will reduce the variety of work performed by workers
and will require less skill. This can be demotivating and increase labour turnover.
• Investment will be required in general-purpose machinery to facilitate batch production.
• Impact on cash flow of having large amounts of work in progress under batch production.
• Impact on prices that can be charged for furniture that is no longer unique to each
customer’s design.
An overall conclusion or judgement is required that assesses the most important factors in
selecting an operations method in this case.
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Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Data response questions
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KL Juice Bar
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Raising price.
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Output per employee in a given time period.
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1 200 ÷ 2 = 600 drinks per employee
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Inputs including fresh fruit are used in order to produce outputs including juice drinks
and snacks.
c Efficiency: there is some evidence that initially the business had high levels of efficiency, e.g. labour
productivity was high and the juice bar was able to serve a large number of customers. Efficiency
has declined because customer numbers have fallen but the staffing levels have not. To improve
efficiency, better-quality juice machines could be purchased, thus avoiding the problem of
breakdowns.
Effectiveness: KL Juice Bar does not appear to be effective. Customer needs were not met; quality
was poor and there were long queues to be served. To improve effectiveness, better-quality fruit
and ingredients could be used. Queues could be reduced by ensuring that staffing levels are higher
at peak times of demand.
d KL Juice Bar is in the tertiary sector and provides a service. It is likely to be highly dependent on
labour to serve customers and prepare food and drinks.
However, it does use capital equipment such as the juice machines. It is possible for the business
to increase its capital intensity through purchasing more juice machines and it is possible that
preparation of snacks could be more capital intensive. It is also possible that customers could
operate the machines themselves. If that was popular, KL could operate self-service only to cut
down on the number of workers employed. However, the business should remain labour intensive
if face-to-face contact with customers is considered to be essential to meet customers’ needs
and wants.
Evaluation should include a justified conclusion about whether to switch to capital intensive
methods in the context of this business.
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Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021